Define allocative efficiency. Explain the significance of this concept in economics?
What will be an ideal response?
Allocative efficiency is an efficiency criterion that describes a situation where the marginal benefit (or marginal valuation) of the last unit purchased is equal to the marginal cost of producing that unit. In other words, allocative efficiency occurs when production reflects consumer preferences. This is a significant concept in that all societies face scarcity which necessitates that societies make choices about what goods and services to produce. To maximize society's wealth, resources must flow to their highest valued use. This value is determined by consumers.
You might also like to view...
Refer to Figure 29-1. The depreciation of the euro is represented as a movement from
A) C to D. B) B to C. C) B to A. D) D to A.
It is likely true that education produces positive externalities
a. True b. False
If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by
a. a decrease in the supply of the good. b. a decrease in the demand for the good. c. an increase in the demand for the good. d. an increase in the supply of the good.
Wal-Mart's full-time employees' average hourly wages that are about ____% lower than those paid by competitors.
Fill in the blank(s) with the appropriate word(s).